Blackstone, the world’s largest commercial property owner, is spending more on real estate and other investments than it has in the past two years as it expects the Federal Reserve to begin cutting interest rates later this year.

The New York firm said it invested $34 billion in the second quarter, it's latest figures show, with deals including taking private both Apartment Income REIT and Tricon Residential and buying the Tropical Smoothie Cafe chain.

Blackstone has committed to spend another $19 billion, Jonathan Gray, president and chief operating officer, said during a conference call Thursday discussing second-quarter results.

“Investment activity is picking up meaningfully,” Gray said. “Commercial real estate value was bottoming. … More bidders were showing up. The cost of capital has declined significantly. The availability of debt capital has increased significantly. The overall trend line on investing is positive.”

The increased pace of spending comes as Blackstone Chief Executive Stephen Schwarzman said he expects the U.S. central bank to lower rates in response to signs of moderating inflation.

“We decide to adopt a more aggressive approach to investment … as the Fed expects to cut [rates] this year [and] new construction for most types of real estate is down” 40% to 70% year over year, Schwarzman said. “Real estate is cyclical. The last two and a half years, the increase in interest rates and borrowing costs created challenges. … When the cycle is turning, it should be very advantageous for our shareholders.”

Blackstone remains focused on three key real estate property types in warehouses, rental housing and data centers, which Schwarzman said together account for three-quarters of its global equity portfolio. That was up from just 2% in 2007 following Blackstone’s sale of a big part of its U.S. office holdings, he said. The long-term supply trend continues to bold well for warehouses and rental housing especially as new construction for these property types has declined, according to the firm.

With artificial intelligence “widely acknowledged to be the biggest driver of transformation,” Schwarzman said AI-related infrastructure will be a key Blackstone focus. He compared the power grid demand for data centers to that of electricity growth when Thomas Edison invented light bulbs.

There’s $1 trillion of capital being spent in the United States in the next five years to build and facilitate new data centers and another $1 trillion overseas, he said, adding the need to provide power for the data centers will drive a 40% increase in electricity demand over the next decade versus minimum growth in the past decade.

“The explosive trend will lead to an unprecedented investment opportunity,” he said. Blackstone is positioning itself to be the biggest investor in AI-related infrastructure in the world, he said, adding it has $55 billion of data center investments, including those under construction, and another over $70 billion in prospective pipeline development.

Blackstone’s data center developer QTS has seen its leasing capacity grow seven times since Blackstone took it private in 2021, Schwarzman said.

In another example of its bet on AI, Blackstone in May agreed to provide $7.5 billion financing for cloud computing provider CoreWeave that Schwarzman said represents the largest debt financing in Blackstone's history.

Blackstone has increased investments in lending, including high-yield real estate debt, to capitalize on the seized-up financing facing the market in the wake of the Fed’s string of rate hikes since early 2022.

Gray said the office sector, to which Blackstone has “minimal exposure,” remains “under significant pressure” with office vacancy rates in the mid-20% range that “will take some time to work through.”

“Investor sentiment has been pretty negative on real estate,” he said. “People are waiting for the numbers to get better. The tenor of conversation around real estate has improved. It’s an interesting time to get back. … Real estate is more episodic, but we are definitely leaning in. … We are seed planting for the future.”

In another example of financing and investment activity opening up for the market, Gray said the cost and availability of capital measured in 10-year Treasury yields is 0.8 percentage points lower from October. The commercial mortgage-backed securities market that he said had been “closed” also has “changed dramatically.”

The private equity giant, with more than $1 trillion in assets under management, posted its second straight quarter of positive real estate investment performance for the three-month period ended in June after a decline in the fourth quarter and the past 12 months.

Breaking down its real estate segment, Blackstone’s riskier opportunistic investment performance inched up 0.3% after a 5.3% drop in the past 12 months while its more stable income-producing investments inched up 0.1% following a 3.1% drop over that time.

Still, the improvements aside, the real estate performance trailed that of Blackstone’s private equity, credit and insurance, and other segments.

The lag in real estate results also played a part in Blackstone’s 3% decline in fee-related earnings to $1.11 billion last quarter. Net income fell to $444.4 million from $601.3 million.

Distributable earnings, or profit available to shareholders and a key performance metric, rose 3% to $1.25 billion.

Total assets under management rose 7% to $1.076 trillion from a year earlier after Blackstone attracted $39.4 billion of inflows in the quarter.